With the four new Labour Codes, India's labour law framework has introduced one of the most significant reforms by formally recognizing the Fixed-Term Employees (“FTEs”). They are one of the most relied workforce categories under the flexible staffing models.

As per Section 2(34) of the new Code on Social Security, 2020 (“CSS”), an FTE is any employee who has been engaged directly by the employer through a written contract, for a pre-determined period. Therefore, the employment of the FTE automatically ends upon expiration of the contract period. This definition establishes four important elements: firstly, written contract as the basis of engagement; secondly, pre-defined tenure; thirdly, direct contract with the Principal Employer with no third-party/contractor in between and lastly, person engaged must fall under the definition of “employee”. The Industrial Relations Code, 2020 (“IR Code”) provides a similar yet different definition, which has been discussed below.

The fixed-term 'worker' and fixed-term 'employee'

By using different nomenclatures, the IR Code and CSS change their scope of coverage. While the definition of fixed-term employment in CSS is in connection with an 'employee', its definition under Section 2(o) of the IR Code is in connection with a 'worker'. Though the essence of the definition mostly remains same, in the IR Code, the term 'Worker' excludes any employee who is serving in a managerial or administrative position, or in a supervisory role and earning more than eighteen thousand rupees per month.

This implies that an employee hired on a fixed-term basis will be given benefits under the CSS but not under the IR Code. For instance, a manager hired through a fixed-term contract will be given maternity benefit, but no retrenchment compensation in case of pre-mature termination of her contract.

Another implication arises for the employers wherein they will have to maintain two different compliance buckets, one for the fixed-term workers and another for fixed-term employees.

Policy rationale for FTEs

The aim of the Central Government while introducing FTEs was to allow the employers to hire workers for a certain project or time period directly without retorting to informal or contractual labour. In this case, their nature of work can be similar to the permanent employees and no prohibition is placed on the same, unlike in the case of contract labour on which Section 57 of the Occupational Safety, Health and Working Conditions Code, 2020 (“OSH Code”) places a limitation that contract labour cannot be hired for performing the core activities in an establishment. The idea is that when the nature of work is same, the benefits attached should be equivalent.

The foremost reason behind this concept is that, FTEs were being used by various companies and even PSUs on the same work profile as permanent employees, to save the additional burden of various statutory benefits that are provided to the permanent employees such as Employees' Provident Fund (“PF”), gratuity, Employees' State Insurance (“ESI”), statutory leaves, maternity benefits etc. which were not available to the FTEs. This was leading to high number of litigations for absorption, regularization and related benefits.

Bridging the gap by providing equal benefits

CSS provides two-fold benefits to the FTEs. First are the benefits given to them on organizational level, if they are involved in the “same work or work of a similar nature” like that of the permanent employees under the same employer. Accordingly, employers shall provide FTEs with equal allowances, wages, leaves, hours of work, facilities at the workplace and other benefits, being given to the permanent employees for similar work.

Second are the statutory benefits available to the FTE under any applicable law. The eligibility of any benefit based on a minimum required period of service shall be overlooked for FTEs. Therefore, any such statutory benefit shall be given to them on a pro-rata basis. These include:

1. gratuity which is payable to an FTE (including Fixed Term Workers) after one year of service, even if they have not completed the period of minimum five years of service, required for permanent employees under Section 2(o)(c) of IR Code read with Sections 2(34) and 53 of CSS;
2. social security benefits, including PF, ESI, and pension schemes subject to the wage ceiling and respective eligibility criteria, under the CSS;
3. maternity benefits under the CSS;
4. bonus under OSH Code;
5. mandatory appointment letter under OSH Code;
6. capped working hours and paid overtime, under OSH Code;
7. earned leaves, based on the number of days an FTE worked, under OSH Code;
8. welfare facilities like canteens and restrooms
   and medical benefits, under OSH Code;
9. timely release of wages along with issuance of wage slips under the Code on Wages, 2019; and
10. retrenchment compensation, if the contract has been terminated before the pre-defined term, under IR Code.                                                                                  

Bottlenecks in accessing statutory benefits

While the new labour regime offers FTEs structured protections, it also presents potential challenges:

1. The extent of engagement of FTEs may get reduced and employers may hire more contract labour and apprentices for non-core activities as they pose an economic advantage over hiring FTEs or permanent employees.
2. To bypass the new statutory obligations, employers may draft contracts that get qualified as independent-consultancy agreements without any potential employer-employee relationship. For achieving this, employers may try to circumvent the traditional judicial tests to determine the true nature of working relationship, namely-
   1. Control and Supervision- It is established when the employer dictates the type of work and the manner in which it is to be done.
   2. Integration- It is used to measure the depth of integration of a person in an organization, which can be established through 'type of work' and its vitality to the company's core operations. Some other criteria include company ID cards, uniforms etc.
   3. Contract of service or Contract
      for service- Lastly, it becomes vital to determine whether the contract is a contract for service or a contract of service. While the former creates an employer- employee relationship as the employee works in the direct control of the employer, the latter is in form of appointing an independent consultant who retains autonomy in the manner of work, timing, equipment etc.

Employers may use various bulwarks to prove non-fulfilment of the above tests. This might disqualify the professionals from qualifying as 'worker' or 'employee' and thereby from falling under the category of FTEs, making them ineligible for the new benefits.

1. Despite the formal recognition and parity benefits, regularisation remains important for FTEs for their career progression, security of tenure and stability against repeated contract expirations. However, formal recognition may reduce the scope of regularisation for them as earlier, such workers claimed absorption on the basis of absence of social security benefits and perpetual nature of work, to convince the Courts that there was inequity. This narrowed scope of regularisation finds its basis in the landmark judgment of
   Secretary, State of Karnataka v. Uma Devi (2006) which proscribed backdoor entries and illegal appointments. Judgments like State of Karnataka v. M.L. Kesari (2010) and Dharam Singh v. State of Uttar Pradesh (2025), have established regularisation as an exceptional remedy where engagement of temporary employees was long-term and recurring. Thus, the prospects of being appointed as permanent employees are now dim, unless the engagement is proved to be a façade, as established by the Hon'ble Supreme Court in
   Shripal & Anr. v. Nagar Nigam, Ghaziabad (2025).
2. Now employers will have more flexibility to formally engage FTEs for core activities, earlier allowed only for permanent employees. This gives rise to a trend among private companies and PSUs to hire FTEs instead of permanent employees, thereby eroding the standard employment relationship.

From halfway house to real reform

The introduction of FTEs under CSS and IR Code is a significant reform in the Indian labour regime which aims to regulate informal contracts of employment and provide wide range of benefits to FTEs, analogous to what are provided to the permanent workers for similar nature of work. However, the introduction of the concept of FTEs is like sheep in lion's skin as it is accompanied with various bottlenecks such as the erosion of standard employer-employee relationship, dignity and stability of a permanent job, option of regularization after long years of continuous service in perennial work. This concern has been actively debated in recent legal and policy circles, with critics describing the new Labour Codes as a significant step towards the dilution of established labour rights and employment security.

In order to address the bottlenecks, it becomes important to outline actionable solutions such as representation of FTEs in the Grievance Redressal Committees, mandatory e-registration for FTEs to streamline inspections and identify sham contracts which then, should be penalized. Such measures are crucial to effectively implement the legislative intent and avoid the negative implications of a halfway house.

Authors are working as legal retainers at ONGC Videsh Limited, New Delhi. Views are personal.